MNCs must pay attention to middle class to reap benefits

by Dave

Brand Equity-Specials-The Economic Times

A new global middle class is rising up from poverty in emerging economies around the world, providing competition for labour and resources, but
also enormous promise for multinationals that tailor products and services to the burgeoning ranks of first-time consumers, according to Wharton faculty and analysts.

Coca-Cola’s newly appointed chief executive Muhtar Kent sees this market as critical to his company’s future, and describes the scale of the opportunity as equivalent to adding a city the size of New York to the world every three months. The World Bank estimates that the global middle class is likely to grow from 430 million in 2000 to 1.15 billion in 2030. The bank defines the middle class as earners making between $10 and $20 a day — adjusted for local prices — which is roughly the range of average incomes between Brazil ($10) and Italy ($20).

The McKinsey Global Institute, the consulting firm’s independent economic research arm, projects India’s middle class will grow from 50 million to 583 million people in the next two decades.
Wharton marketing professor Jagmohan Raju predicts the shift in distribution of the global middle class will continue as developing countries adapt to remain competitive in the world economy. “Due to economic pressures, more and more companies in developed nations are seeking educated workforces in emerging markets to outsource manufacturing and service jobs,” he says. “More economic pressures in the West mean more jobs in emerging markets and a bigger middle class that has higher buying power.”

As a result, multinationals that have so far viewed developing nations largely as a cheap source of labour, are now poised to benefit again as many of the workers they paid to build their products are increasingly able to afford Western consumer goods. “Countries like India consist of young consumers who are ambitious and save quite a bit, but are also willing to spend on small luxuries like Western brands of consumer packaged goods,” says Raju.

[Bill] Amelio, CEO of Lenovo, points to management structures that multinationals should embrace to conquer new consumer markets. As an American, he says, he realises how difficult it is for a Western company to grasp the changes underway in developing consumer markets. He said a key metric for managers is whether growth is as fast — or faster — than market growth in emerging economies such as Russia, Brazil and China. “If you’re not planning to have more business outside the US than in the US market, then you’re probably planning wrong,” he notes, adding that management diversity is crucial.

Lenovo currently has 10 different nationalities represented on its management team: “A diverse set of thinking keeps us honest,” Amelio says. In addition, Lenovo operates on a hub system with no official global headquarters. “We blew up our idea of a headquarters and it forced more decentralisation and more decision-making closer to the customer.”

Maurizio Bussolo, an economist with the World Bank’s Development Prospects Group,…predicts that future globalisation will be built, at least in part, on new integration between South Asia and East Asia and other developing markets. “Mainly these countries have traded with the US and Europe, but now there is new South-South integration.”

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